Subsale for private-home continue to hit new heights in 2023

The number of transactions in the private housing market in Singapore has risen again to its highest level in 2023 with 1,294 deals, an increase of 69.2 % from last year.

The sub-sales market has grown strongly for the second year in a row. This market can be viewed as an indicator of speculative behaviour. Volumes reached a decade-long peak in 2022 when 765 transactions were recorded, an increase of 34.7% over 2021.

Although, the current level is a fraction of what was recorded at the height of the housing market in 2007, when there were 4,863 subsale transactions. Sub-sales are likely to be on the rise due to the recent surge in home values.

When a buyer resells an apartment purchased directly from the developer in the three- to four-year period before the project is completed, a subsale will be recorded.

Urban Redevelopment Authority data shows that sub-sales made up 9.5 percent in the fourth quarterly of 2023. It was the first time it exceeded 9 percent since 2011. This is also the highest number since Q1 2010, where sub-sales represented 9.6 per cent.

In the past decade, subsales ranged in percentage between 0.3 and 3.5 of all transactions.

The Business Times analyzed data from a local property portal that showed almost all sub-sale transaction recorded in second half of 2023 was profitable. One deal made a S$38, 000 loss in September. This was a 1,335 sq ft unit in the District 14 freehold apartment Rezi 24.

In Q4 of 2023, profits ranged from S$10,000 up to S$864,000. Overall, the median capital gain from a subsale transaction was S$243.500. That’s around 22.3%.

The figures in this article for profit on sub-sale transactions do not include any transaction costs like taxes, stamp duty and legal fees.

A median annual capital gain was also achieved by sellers, with a holding period 4.2 years.

Affinity at Serangoon’s 99-year leasehold condominium project, Affinity 2,067 sq. ft. terrace house was the deal which generated the highest profit for Q4 2023. In October, the unit was sold at S$3.18m. The seller earned a profit of S$864,000 for holding the property for almost 4.6 years.

In October, a freehold condominium Sky Everton located in District 2 sold a unit measuring 657 square feet for S$1.85million. The seller only made S$10,000 after a 4.3-year holding period.

When broken down by region, the Outside Central Region (OCR), which includes Singapore and the rest of Southeast Asia, had the highest profits. The median capital gain was S$243,000 or 23 per cent of initial purchase price. This equates to a profit of 4,9 per cent per annum.

Rest of Central Region or the city fringe was the next to be sold. It saw a median profit of S$244,000, which is 20,4 per cent of its initial price. This represents a 4,3 per cent annualised gain.

Prime Core Central Region was lagging with a median profit of S$238,700 (just 9 per cent of initial transaction price) and an annualised gain of 2.4 percent.

Singapore Property Arena analyst pointed out the fact that properties in suburban OCR generated typically the highest capital gains percentage-wise, as the acquisition prices of these properties were lower than other regions.

In the CCR, for example, the median purchase price was S$6.16m. RCR and OCR property prices were S$1.27 and S$1.12 millions, respectively.

According to the study conducted by Property Watcher, there is little difference between sub-sales for freehold and 99-year leasehold property. Profit margins and annualised capital gains are higher for 99 year leasehold properties, as their purchase price is usually lower than freehold properties.

It is the fourth consecutive increase in sub-sale figures after a period of decline of over a decade. The sub-sale numbers are also up after a decline in 2020. Only 198 transactions were recorded.

Since then the market has seen a steady growth in volume, with sub-sales increasing by more than twice in 2021 and reaching 568 deals. This will continue to increase in 2022 and in 2023.

Researchers attribute the increase in subsales since 2020, to the disruptions and delays in the construction sector caused by the pandemic. It took a lot longer for some residential construction projects to be completed. This has a lasting effect even today.

Sub-sales are more profitable for investors due to delayed project completion and rising prices. URA’s index of private residential homes increased by 32.5% between Q12020 and Q42023.

More investors would be motivated to sell their property if the potential profit was higher.

Some agents will encourage homeowners to make a “sub-sale” in order to “recycle their capital”.

After brokering the sale a newly-launched private residential project, agents can keep the contact information and follow up with the buyer in three to four years. This is to encourage them sell their first unfinished unit and to buy another one.

This is because the property developer’s commission rate is typically higher than the usual 1 per cent that they receive for a resale.

A progressive payment plan will be in place for those buyers who are waiting on an uncompleted project. It means that you will have to pay the full price of the property before the project has been completed. The homeowner may get a better return on investment if they do this.

In 2018 and 2019, several large-scale residential projects were launched in OCR. The fact that short-term buyers could purchase many condos at a low price led to an increase in sub-sales during the past two year, said Mr. Ayala.

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Researchers still point out that sub-sale sales are not at their 2007 peak and will likely continue to decline in 2024.

Today’s market conditions are quite different from 2007

For example, cooling measures such as Additional Buyer’s or Seller’s Duty and the Total Debt Servicing ratio were not implemented in 2007. These measures were introduced from 2009 to 2013 in order to curb market speculation after the global financial crisis.

In addition, the high-interest rate environment and economic uncertainty are likely to have a negative impact on the residential market. In the future, it is likely that sub-sales will decrease.

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